Economic indicators have, on the whole, been negative in recent weeks, particularly in Europe and the region's stocks have taken a hit. This week, Germany reported a drop in investor confidence, France said its deficits would be higher than expected, and unemployment rose in Britain.

The International Monetary Fund, meanwhile, lowered its outlook for the world economy, predicting that government spending cuts will slow U.S. growth and keep the euro currency countries in recession this year.

Analysts said another reason for the market's drop was market speculation that Germany could suffer a credit rating downgrade. Though several economists said it was unlikely, since the country's debt costs are at record lows, traders in Europe remained cautious.

By early afternoon in Europe, Germany's DAX was down 1.6 percent to 7,556.49 while France's CAC-40 lost 1.3 percent to 3,636.31. The euro was down 0.4 percent against the dollar to $1.3126.

"Once again, fear rather than optimism is the overriding factor affecting European traders, and early market rumors of a German debt downgrade have seen the DAX lead the way lower," said Alastair McCaig, market analyst at IG.

In Britain, the FTSE 100 was 0.5 percent lower at 6,274.54 after Tesco, the country's largest supermarket operator, reported a sharp drop in profits. The company blamed costs at its Fresh & Easy U.S. operations, which it is trying to sell. It also sounded negative about Asian markets, announcing it would pull out of Japan and take a more measured approach to growth in China.

Labor market figures for the U.K. were also negative, showing unemployment rose by 70,000 in the three months to February. The number suggests the British economy is unlikely to stage a significant recovery in coming months.

Wall Street opened lower as well after Bank of America reported disappointing earnings, causing its shares to drop 3.8 percent. The Dow was down 0.8 percent to 14,632.23 while the broader S&P 500 futures shed 1 percent to 1,558.03.

Corporate earnings reports had until Wednesday been one of the few bright spots for markets this week, so investors will look for improvements in reports from other big names — such as American Express and eBay — later in the day.

Another point of focus will be the Federal Reserve's Beige Book, a regular report that is expected to show that activity in the world's largest economy is still only gradual.

Earlier, Asian stock markets mostly closed higher.

Japan's Nikkei 225 rose 1.2 percent to 13,382.89 as the yen weakened again, helping its many exporting companies. The dollar was up 0.4 percent to 97.91 yen.